2018 (10) TMI 277 - AT - Income Tax

Deduction u/s 54F - eligibility criteria - determination of net consideration - Held that - On perusal of section 54F, what is, therefore, relevant is the investment of the net consideration in respect of original asset which has been transferred and whether net consideration is fully invested in the new asset. The net consideration as determined under section 50C based on the stamp duty authority valuation is not a consideration which has been received by or has accrued to the assessee. The ld. D.R. did not place reliance on the proviso to section 54F. It is, therefore, clear that the entire net consideration and whatever has physically received and accrued to the assessee, the entire amount has been invested and in such circumstances, provisions of section 54F(1)(a) are complied with by the assessee and, therefore, assessee becomes eligible for deduction in respect of whole of the capital gains to be computed under section 45 read with section 48 and 54F(1)(a) of the Act. In this view of the matter, we set aside the order of the ld. CIT(A) and allow the appeal of the assessee.

Issues:
1. Disallowance of deduction under section 54F of the Income Tax Act.
2. Application of provisions of sections 45, 48, and 50C in determining capital gains.
3. Discrepancy in property valuation and fair market value.
4. Failure to consider comparable sale instances.
5. Excessive addition of capital gains.

Issue 1: Disallowance of deduction under section 54F:
The appellant contested the addition of Long Term Capital Gains by the CIT (A) and argued that the deduction claimed under section 54F should be allowed as the net consideration was invested, thus exempting the capital gains from tax. The appellant emphasized that the deeming fiction in section 50C should not affect the deduction under section 54F, which is an independent provision. The Tribunal found that the entire net consideration received by the assessee was invested in the new asset, meeting the conditions of section 54F, and therefore, allowed the appeal.

Issue 2: Application of provisions of sections 45, 48, and 50C:
The Assessing Officer applied sections 45, 48, and 50C to the case, arguing that the fair market value determined by the DVO should be considered for charging capital gains. However, the appellant contended that section 50C's deeming provision should not override the specific provisions of section 54F, which exempts capital gains if the net consideration is fully invested in a new asset. The Tribunal held that section 50C's application is limited to section 48 and cannot affect the provisions of section 54F, which protect the interests of the assessee.

Issue 3: Discrepancy in property valuation and fair market value:
The appellant challenged the valuation of the property by the DVO, arguing that the actual sale consideration was lower due to peculiar circumstances. The Tribunal noted that the fair market value determined by the DVO did not reflect the actual net consideration received by the assessee. It emphasized that the net consideration, which the assessee had physically received and invested, was the relevant factor for determining eligibility for deduction under section 54F.

Issue 4: Failure to consider comparable sale instances:
The appellant presented comparable sale instances of other properties in the vicinity to support their case, which the CIT (A) allegedly ignored. The Tribunal observed that the consideration of comparable sale instances was crucial for a fair assessment and criticized the CIT (A) for not considering these instances, leading to an arbitrary and biased decision.

Issue 5: Excessive addition of capital gains:
The appellant argued that the addition of capital gains was excessive, contrary to facts and principles of natural justice. The Tribunal agreed with the appellant, stating that the entire net consideration had been invested in the new asset, making the addition unsustainable. It held that the appellant was eligible for deduction under section 54F and allowed the appeal, quashing the excessive addition of capital gains.

In conclusion, the Tribunal ruled in favor of the appellant, allowing the appeal and setting aside the order of the CIT (A) based on the correct interpretation and application of the relevant provisions of the Income Tax Act.

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